Trickle-down Dems would line pockets of big business

Article Highlights

  • Dems attack the GOP for "trickle-down economics," but their latest plan involves giving cash to big corporations.

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  • By "trickle-down economics," the Democrats are referring to tax cuts and deregulation.

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  • The Democratic budget heralded Obama’s execution of the Wall Street bailout on the theory money would trickle down.

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Democrats love attacking the GOP for practicing "trickle-down economics," but their latest congressional budget makes Republicans look like pikers. The spending priorities and "investments" Senate Democrats propose to help the middle class mostly involve handing money to big corporations.

"The Senate Budget takes the position that trickle-down economics has failed as an economic policy," the document's introduction reads, "and that true national prosperity comes from the middle out, not the top down." By "trickle-down economics," the Democrats are referring to tax cuts and deregulation -- what a conservative might call "leaving people and businesses alone."

But in the next paragraph, the Democratic budget celebrates "the policies President Barack Obama and Congress put in place in response to the Great Recession." Those policies are Obama's implementation of the Wall Street bailout, the government-funded rescue of Chrysler and General Motors, and a stimulus bill that threw money at the likes of General Electric and Bechtel, on the theory that the money would trickle down to American workers.

In their new budget, Senate Democrats don't merely applaud this sort of trickle-down Obamanomics -- they propose more of it.

One swath of the budget document calls for "investing in jobs." This is another way of saying federal subsidies for business. In the name of "investing in middle class families trying to buy a home," the budget proposes throwing more money at the Federal Housing Authority, Fannie Mae and Freddie Mac.

Fannie and Freddie operated for decades as slush funds for politically connected operatives to get rich by inflating the housing bubble, all the while sticking taxpayers with the risk from mortgage lenders such as Bank of America and Wells Fargo. In 2008, the federal government bailed out these government-sponsored enterprises, meaning taxpayers eventually ate the bankers' losses. The FHA, similarly, is about socializing the risk of bankers, while subsidizing homebuilders and Realtors.

The Democratic budget also promises to "continue ... the progress already made to expand U.S. exports" and keep funding for "the government agencies that open new markets for U.S. Exports."

The chief tool in President Obama's "export initiative" had been a government agency called the Export-Import Bank. Ex-Im supports exports by lending taxpayer money or guaranteeing private loans to foreign buyers of U.S. goods. Last year, Ex-Im dedicated more than 80 percent of its loan-guarantee dollars to subsidizing Boeing sales.

Democrats may argue that these Boeing subsidies -- and Boeing just got a $1.2 billion guarantee last week -- create jobs. But a party that "creates jobs" by giving taxpayer subsidies to Boeing should not complain about "trickle-down economics."

The rest of the budget is more of the same. Senate Democrats want a $20 billion "investment" in broadband -- laying fiber optics, especially in rural areas. Rural broadband is well-known as corporate welfare to the companies that get to lay the wire. The New York Times last month published a story about an 11-student schoolhouse in rural Colorado with three fiber-optic Internet lines, funded by a $100 million taxpayer grant to a consortium featuring IBM. Who's really benefitting here, the students or the companies?

Democrats are also dredging back up the idea of an "infrastructure bank," which is a road-paving and rail-laying version of Ex-Im. It would be an agency for subsidizing infrastructure projects through taxpayer-backed financing.

"Investing in life science research" is another Democratic budget priority. To show the need for more biotech funding, the budget cites a group called United for Medical Research. UMR represents two of the biggest lobbying organizations in Washington: the Biotechnology Industry Organization and the Pharmaceutical Research and Manufacturers of America.

Also making an appearance in the Democratic biotech budget is the Alliance for a Stronger FDA, which is another group funded by BIO, PhRMA, Pfizer, Merck, Eli Lilly and Johnson & Johnson.

So the Democratic budget repeatedly calls for subsidizing the likes of Boeing, General Electric, Pfizer and IBM -- because those companies will in turn hire or provide services for the middle class or the poor.

There's a colorful description for this sort of policy: feeding the horse to feed the birds. If you want to feed birds, you could set out birdseed in a bird feeder. Or you could throw some hay to the horses, and let the birds feast on what comes out the other end.

Here's a more polite term for the Democrats' economic approach: "trickle down."

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About the Author

 

Timothy P.
Carney
  • Timothy P. Carney helps direct AEI’s Culture of Competition Project, which examines barriers to competition in all areas of American life, from the economy to the world of ideas. Carney has over a decade of experience as a journalist covering the intersection of politics and economics. His work at AEI focuses on how to reinvigorate a competitive culture in America in which all can reap the benefits of a fair economy.


     


    Follow Timothy Carney on Twitter.

  • Email: timothy.carney@aei.org

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